7 steps to create a good financial plan

Is there a secret formula to create a good financial plan? Vivek Shah, Founder & Chief Emotions Officer, Finrise, believes so. His secret is a pyramid style of financial planing, with all major needs occupying different levels of the pyramid. Shah was speaking at the ET Wealth Investment Workshop held in Ahmadabad on March 8.

The first level of the financial planning , according to Shah, is documenting all your investments and important papers. He believes that before making a financial plan, one should sit down with all the documents and not just have ideas in the head. “Documentation is the fundamental and base of all financial planning. Your investments should be documented and your family should be aware of them,” said Vivek Shah.

Next step of the financial plan is discovering your long-term and short-term goals. In the absence of financial goals, your investments might not fulfill your expectations. “Writing down financial goals, both long-term and short-term is very important. In absence of a proper worked out corpus and goal, you will never know how much is enough,” Shah said.

Shah stressed on the importance of a contingency fund in one’s financial plan. He believes that without a contingency fund, all other goals can be disrupted by a sudden need of funds. This can throw all your other goals in limbo. “Start with creating a fund that is with you in liquid form, so you don’t liquidate your other investments in times of need,” Shah said.

The next important stop, according to Shah, is risk planning. This plan is divided in three sub parts: health, life and asset. Vivek Shah says that it is important to save your investments and yourself for times of uncertainty. A health insurance, a life insurance and an insurance for your assets are a must to make sure your investments don’t take a hit in times of a natural disaster, calamity or accidents etc.

The next step for an investor is to figure out how to achieve her financial goals. One should inflate the amount one needs for goals like education, marriage, house, travel etc to get a realistic figure and then choose the schemes and products. One of the most important long-term goals is retirement. Shah believes that retirement should be the first goal you think about when you start investing.

Last but not the least, Vivek Shah believes that an investor, no matter how old or young she is, should have an estate planning. This means that regardless of age, investors with investments, property, insurance etc should have a will, power of attorney or family trust in place. “If you don’t have the documents ready with your nominees or legal heirs, they might face a lot of trouble getting what you kept for them. In such cases, the investments become worthless,” says Vivek Shah.